What you need to know
While growth in the UK commercial property market slowed in 2018, the overall performance remained solid given the prolonged political uncertainty around Brexit and global economic headwinds. This partly reflects favourable exchange rate conditions for overseas investors and robust occupier demand in a number of sectors, including logistics and prime offices.
Looking ahead, many industry experts have adopted a more cautious outlook. The extension of Brexit to 31 October 2019 is likely to lead to investors and occupiers taking a wait-and-see approach, with activity expected to be more measured during the current year.
Nonetheless, investor appetite for prime assets in London is anticipated to remain solid due to the capital’s long-term strong market fundamentals. Logistics and alternatives are also expected to perform comparatively well in 2019. This reflects continued strong occupier demand in the logistics sector, while UK and foreign investors remain attracted to the secure, long-term income streams offered by alternative asset classes.
Covered in this Report
The terms of reference for this Report concern the UK commercial property market, which includes owner-occupied and investor-owned properties. The Report focusses on investors’ share of the market.
Commercial property is defined as including retail, offices, industrial premises (warehouses and most types of factory), and ‘other commercial’ properties typically used for business purposes, such as leisure (cinemas, fitness clubs and gyms, leisure parks, etc), hotels, petrol stations, and other miscellaneous types. The Report excludes other commercial property sectors, such as health and education, museums and libraries, sports grounds, courts and prisons, heavy industrial plants, infrastructure and open structures, such as theme parks.
For the purpose of this Report, the market is segmented as follows:
Retail: Shops, shopping centres, supermarkets, retail warehouses, post offices, bank branches, hairdressers and beauty salons, cafes, take-aways, restaurants and pubs, car showrooms, and garden centres.
Offices: Offices, business units, data and computer centres.
Industrial: Warehouses and stores, factories and workshops, newspaper printing works etc.
Other Commercial: Bingo halls, bowling alleys, casinos, cinemas and theatres, arenas, concert halls and exhibition centres, night clubs, hotels, health farms, gyms, sports centres and swimming pools, caravan parks and holiday sites, purpose-built car parks, petrol stations, film, TV and recording studios.
The investment element of the commercial property market comprises a number of different investor types, which are defined by the Investment Property Forum (IPF) as follows:
UK Institutions (insurance companies and pension funds) - Insurance company long-term funds, unit-linked life and pension funds, managed property funds.
UK & Channel Island domiciled collective investment schemes - Authorised and unauthorised property unit trusts and similar, limited partnerships domiciled in the UK and Channel Islands. Includes Channel Islands property investment companies, but excludes insurance company managed property funds.
UK REITS and listed companies - Companies listed on the main market of the London Stock Exchange and incorporated in the UK under the REIT and Real Estate Holding & Development categories.
UK private property companies - Other companies undertaking activities classified under the 2007 SIC either as “the development of building projects”, “the buying and selling of own real estate”, or “the renting and operating of own real estate”.
UK traditional estates/charities - Charities and traditional landed estates.
UK private investors - Individuals, family trusts, high net worth syndicates.
UK other - Mainly local authorities and pub owners.
Overseas investors - All those domiciled outside the UK and Channel Islands, excluding foreign owned fund managers, insurance companies, and pension funds investing UK sourced capital.
“Rental value” of commercial property refers to the rateable value of property. The rateable value of property is the value at which a property might be expected to be let for one year as assessed by the Valuation Office Agency (VOA).
One billion refers to one thousand million.
Some numbers in tables may not add due to rounding.
